Commercial property construction booms

Capital economic circle faces oversupply problem

An oversupply of commercial properties in China's capital economic circle is likely in view of enthusiasm in property construction, a global real estate consultancy said in its white paper Monday.

A boom in construction in the circle, which comprises Beijing, Tianjin and North China's Hebei Province, has resulted in lumpy growth, according to the white paper released by Jones Lang LaSalle.

More than 15 million square meters of commercial space is planned to be completed by 2020 just in Beijing and Tianjin, which is "worrying," the white paper said.

Demand in these areas is insufficient to justify such a huge amount of office space, given economic slowdown and slower expansion of demand from traditional occupiers for office, Christopher Clausen, research manager at Jones Lang LaSalle Beijing, said in a press release on the white paper.

Construction for infrastructure including railways has accelerated in these areas since March when Chinese Premier Li Keqiang announced the nation's strategy in his work report to coordinate development in Beijing, Tianjin and neighboring Hebei Province.

The establishment of a capital economic circle is also included in the country's 12th Five-Year Plan (2011-15).

Both Tianjin and Hebei are trying to emulate the success of Beijing, with Tianjin and cities in Hebei attempting to build new office towers and commercial areas that rival Beijing's Central Business District (CBD) and Finance Street.

Tianjin is building a total of five CBDs for instance, according to the white paper.

In response to the central government's push to coordinate development in the three areas, Caofeidian, a district in Hebei has started construction of its Caofeidian Industry Zone, which is very similar to an industrial zone in Tianjin.

However, media reports have noted that the Caofeidian industrial zone is lacking growth momentum in view of factors such as overall slowing economy.

To improve competitiveness, "Caofeidian can rely on its advantages including a base of steel production and develop in a unique way," rather than just copying the industrial zone in Tianjin, Michael Hart, managing director at Jones Lang LaSalle Tianjin, told the Global Times during a press conference Monday.

Despite the potential risks of oversupply in the new capital economic circle, investors still have much enthusiasm in commercial properties in these areas.

"Some institutional investors such as Black Stone and Vanke Co have come to us for advisories about investments in these areas," Durrell Mack, head of research in Tianjin at Jones Lang LaSalle, told the Global Times Monday.

Vanke is China's largest residential developer by sales.

Warehousing is one of the most attractive targets for investors due to fast expansion of logistics and e-commerce business, noted Mack.